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EXHIBIT 10.42

INSURANCE BONUS AGREEMENT

This Agreement (Agreement) made this 23rd day of December, 2003 by and
between Erie Indemnity Company, a Pennsylvania business corporation (the
Employer), and
Jeffrey A. Ludrof (the Executive).

WHEREAS, The Company and the Executive had previously entered into a Split
Dollar Insurance Agreement, a copy of which is attached to this Agreement; and

WHEREAS, under the terms of the Split Dollar Insurance Agreement, the parties
may mutually agree to terminate such contract; and

WHEREAS, the Employer and the Executive believe it is in their mutual interests
to terminate the Split Dollar Agreement because of specific but separate
provisions of the Sarbanes-Oxley Act of 2002 with respect to the prohibition of
loans to officers or directors of a public company, and U. S. Department of
Treasury regulations (published September 17, 2003) with respect to the
taxation of split dollar arrangements; and

WHEREAS, based on consideration of the Sarbanes-Oxley Act and Department of
Treasury regulations, it was the recommendation of the Executive Compensation
and Development Committee of Erie Indemnity Companys Board of Directors to
terminate the Split Dollar Agreement and replace it with this Insurance Bonus
Agreement, which recommendation was accepted and approved by the Board of
Directors of Erie Indemnity Company at its meeting of December 9, 2003; and

NOW, THEREFORE, intending to be legally bound hereby, the Employer and the
Executive agree as follows:



| | 1. |  | The Split Dollar Agreement as attached to this policy is
hereby mutually agreed to be terminated effective upon the execution
of this Agreement. The life insurance policy issued with respect to
the Split Dollar Agreement shall remain in full force and effect,
and the Executive shall remain the owner of such policy. Any
premium loans due and owing to the Employer by the Executive shall
be paid in full from the accumulated cash value in the policy as
soon as practicable after the execution of this Agreement by the
parties.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | 2. |  | The Employer agrees to pay all premiums on life insurance
Policy No.
16-176-764 insuring Executives life issued by the Northwestern Mutual
Life Insurance Company of Milwaukee, Wisconsin necessary to pay up the
policy such that no further premium would be required under current
dividend assumptions which contemplate that the policy would be paid
up twelve (12) years after its issuance date; provided, that in the
event the Employee remains continuously employed with the Employer for
at least twelve (12) years from the date of the policy issuance,
dividends at that point in time should be sufficient to pay all future
premiums; and no further premium payments
would be required by the Employer. In the event that dividends are
not sufficient to pay future premium at the end of the twelve (12)
year period, then the Employer shall continue making such premium
payments as are necessary to continue the policy in force so long as
Employee remains employed with Employer. No contributions toward the
payment of premiums by the Executive are required.
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 3. |  | The Executive will execute an endorsement on the policy
restricting the Executives right to (a) surrender the policy for
its cash value, (b) obtain a policy loan from the insurance company,
(c) assign the policy as collateral, (d) change the ownership of the
policy by endorsement or assignment, except for a change in
ownership to a trust or similar entity for estate tax planning
purposes for the benefit of Executive, his heirs or assigns, or (e)
change insured. Such endorsement shall remain in effect for the
benefit of the Employer so long as the Executive remains
continuously employed with Employer for twelve (12) years from the
date of policy issuance at which time the Company shall execute a
release of such endorsement. If employment is terminated, the
Executive shall have all rights under the policy without restriction
and the Company shall execute a release of such endorsement.                                                                                                                                                             
|
| | 4. |  | The Employer shall not be entitled to receive any benefits
under the policy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | 5. |  | The Executive shall recognize the premium paid hereunder as
additional compensation for federal income tax purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | 6. |  | The Employer shall, in addition to the premium payment,
annually increase the Executives normal compensation by an amount
determined by the following formula: P/1-X where P equals premium
paid by the Employer on the policy pursuant to this Agreement and X
equals the Executives marginal Federal income tax bracket for such
year plus the tax rate for any of the following that may be
applicable:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| |  |                                                       
| |  | ------------------------------------------------------
| |  | i. Pennsylvania income tax;                           
| |  |                                                       
| |  | ii. Employee portion of Pennsylvania
unemployment tax;
| |  |                                                       
| |  | iii. Local income tax;                                
| |  |                                                       
| |  | iv. Employee portion of FICA OASDI;
and               
| |  |                                                       
| |  | v. Employee portion of FICA
Medicare.                 

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| | 7. |  | This Agreement is being delivered and is intended to be
performed in Pennsylvania and shall be construed and enforced in
accordance with the laws of Pennsylvania.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 8. |  | This Agreement is the entire understanding among the parties
and may be altered, amended or revoked only by subsequent written
instrument executed by all parties.

WITNESS WHEREOF the parties have executed this Agreement this 23rd day of
December, 2003.

|                 |  |         |  |                                           
|---------------- |  | ------- |  | ------------------------------------------
|                 |  | By:     |  | /s/ Philip A. Garcia                      
|                 |  |         |  |                                           
|(Corporate Seal) |  |         |  | Philip A. Garcia, Executive Vice President
|                 |  |         |  |                                           
|                 |  | Attest: |  | /s/ Jan R. Van Gorder                     
|                 |  |         |  |                                           
|                 |  |         |  | Jan R. Van Gorder, Secretary              
|                 |  |         |  |                                           
|                 |  |         |  | /s/ Jeffrey A. Ludrof                     
|                 |  |         |  |                                           
|                 |  |         |  | Jeffrey A. Ludrof                         

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